Energy Consumption and GDP Causality: New Evidence from Disaggregated Data and Panel Long-Run Causality Tests of Developed and Developing Countries

Abstract

This paper disaggregates energy consumption and GDP data according to end-use to analyze a broad number of developed and developing countries grouped in panels by similar characteristics. Panel long-run causality is assessed with a relatively under-utilized approach recommend by Canning and Pedroni (2008). We examine (i) reduced form production function models for both the industry and service/commercial sectors, where aggregate energy consumption is expected to cause aggregate output; and (ii) reduced form demand models, where income is expected to cause (separately) per capita residential energy consumption, per capita residential electricity consumption, and per capita gasoline consumption. We uncover for 12 different panels a set of super-consistent causality findings across three demand models that income “Granger-causes” per capita consumption. By contrast, the results from the production function models suggest that a different modeling framework is required to glean new, useful insights.

Keywords: energy consumption, economic growth, panel causality

JEL Classification: C01, C12, C23, O13, Q41, Q43